Momentum builds for a tax cut White House shaping own plan

October 22, 1991|By Karen Hosler | Karen Hosler,Washington Bureau of The Sun Peter Osterlund of The Sun's Washington Bureau contributed to this article.

WASHINGTON -- Momentum appears to be building quickly within the White House for a new economic package that would include tax cuts for middle-income Americans as well as growth incentives and some extension of jobless benefits, officials said yesterday.

With Republican as well as Democratic leaders acknowledging the political danger posed by the lingering effects of the recession, the White House for the first time publicly said yesterday that President Bush is considering some form of middle-income tax cut, which had been endorsed only by Democrats.

"It's in the mix," White House spokesman Marlin Fitzwater said. "I can't give you odds on it at the moment . . . but it would be the dramatic new element."

Among the tax changes being considered for inclusion in the Bush package are: a cut in the payroll taxes for Social Security; expanded tax breaks for money invested in individual retirement accounts; investment tax credits; and the Bush administration's long-sought reduction in the capital gains levies on profits from the sale of assets.

Mr. Fitzwater also hinted for the first time yesterday that the White House might be willing to back a deal that would require an adjustment of last fall's budget agreement, which it has steadfastly resisted previously.

But the price for such a deal may come high for the Democrats, another senior administration official said.

For example, the official said, the White House might be willing to cut the defense budget to finance tax cuts and growth incentives, but it would not allow any increase in domestic spending and might even insist on domestic spending cuts.

An almost certain element of the Bush package would be an extension of unemployment benefits for still-out-of-work Americans whose payments have run out.

The White House is anxious to heal political wounds caused by Mr. Bush's veto last week of a Democratic-sponsored jobless bill that he rejected because, he said, it had no means of financing without adding to the federal budget deficit.

Yesterday's White House signals came one day after Sen. Lloyd Bentsen, D-Texas, seized attention by unveiling a $72.5 billion tax proposal of his own that he said would reduce the tax burden on middle-income Americans and encourage them to save.

They also followed a month of active debate within the administration sparked, officials said, by Mr. Bush himself, who told aides he was troubled by the slow pace of economic recovery and asked for a broad range of options.

The president's new willingness to consider middle-income tax cuts and possibly even a new deal on the budget also suggests that a division of opinion among his top advisers is being resolved in favor of those who have been urging a more activist approach.

Vice President Dan Quayle has been foremost in that group, along with Housing Secretary Jack F. Kemp and Commerce Secretary Robert A. Mosbacher Sr., who have all been warning Mr. Bush about the political dangers of appearing to do nothing about the recession, especially if it should take a second dip by the end of the year.

More resistant to offering a new package have been White House Chief of Staff John H. Sununu, Budget Director Richard G. Darman and Treasury Secretary Nicholas F. Brady.

They have argued strongly against breaking the budget agreement, except for overseas emergencies, and have argued that the Democratic-led Congress is unlikely to give the administration what it really wants -- the capital gains cut.

But this group is "being run over" by the political clamor for action from the White House, another administration official said.

The timing of a Bush package is unclear. Republican lawmakers have predicted it could come as early as this week, but Mr. Fitzwater would say only that that was "a good ballpark [estimate]."

Most of the proposals under consideration in the White House have already been introduced in Congress in one form or another; the major change would be tying them togetherin one package.

Even if the Bush plan is put forward soon, there is no likelihood it would be voted on by Thanksgiving, by which time lawmakers hope to conclude their work for this year.

"With each week, the chances of coming up with a bill become smaller," said Sen. Bill Bradley, D-N.J., alluding to a central tenet of life on Capitol Hill -- that big, important legislation becomes increasingly difficult to pass as the clock winds down on the congressional calendar.

Nevertheless, a few hints of possible compromise suggest a deal could be struck. For example, Sen. Phil Gramm, R-Texas, and other Republicans have said they could support the Bentsen plan because it proposed translating defense savings into tax cuts instead of increased domestic spending.

"If everybody decides it's in their interest to cut a deal, a deal will be cut," said Mr. Gramm.